If you’re seeking an investment opportunity that’s poised to perform well despite the dim economy, perhaps it’s time to look to your four-legged friends for inspiration.
Many Americans have adopted animal companions to help them weather the hard times: Pet ownership is at an all-time high of 72.9 million households. Likewise, spending on pet-related companies is on the rise: The pet products and services industry has been growing by nearly six percent since 2001, topping $50 billion in 2011.
"If you take a step back and look at the last five to seven years, the pet industry has enjoyed remarkable growth," says Brian Jaffe of private equity firm Cascadia Capital. "That growth has largely been driven by the ‘humanization of pets movement’ in which consumers are spending on them as if they were equal to everyone in the household."
Recession-Proof Industry with Growth Potential
Investors have been taking notice of the growth in pet-related companies.
Highland Capital Partners, a private equity firm, holds stakes in two pet-related companies, Castor & Pollux Pet Works and Trupanion pet health insurance.
"The investment community is extremely bullish on the pet market," says David Krauser, a director at Highland’s consumer fund. "Because pets are valued as members of the family, consumers are a lot more enthusiastic about purchasing premium products. People are doing whatever it takes to keep their pets alive and healthy."
Best Picks Within the Pet Market
Krauser says that insurance, premium pet food, and online pet medication companies are all growing markets in the pet industry.
In America, says Krauser, the pet insurance market is worth around $500 million. While that may seem like a large number, "that represents less than one percent of all pets in the United States," he says. He sees a huge, untapped potential consumer market for pet insurance products.
With regards to the pet medicine market, he sees a shift from consumers purchasing drugs at the veterinarian’s office to making purchases online through e-commerce specialty sites. "In retail, the trend is to move online, and similar trends are hitting the pet market," he says.
"The sales model of pet medication has been drastically altered in recent years," agrees Andrew Schrage, co-owner of the personal finance site MoneyCrashers.com. "In the past, the majority of all pet medication was disbursed by the veterinarians themselves. This, however, has changed with the advent of the Internet, as online stores such as 1-800-PetMeds (PETS, Financial) offer many medications for less than what vets charge. Furthermore, brick-and-mortar retailers such as Target and Wal-Mart (WMT) now sell non-prescription pet health products. Lastly, the growth of the veterinary pet insurance industry is making the purchase of pet drugs much more affordable than ever."
In 2011, consumers spent close to $12 billion on pet supplies and over-the-counter medicine, according to data from the American Pet Products Association.
"The pet medication industry is constantly growing as everyone loves their pets and considers them to be part of the family," affirms Bonnie Levengood, 1-800-PetMeds marketing director. The company, which provides pet meds and health products, has seen a growth of about 3.7% in reorder sales over FY 2010.
Schrage says that pet services is also a business type that’s likely to see growth in coming years, so investors may want to consider buying stock in publicly traded companies that offer grooming, boarding and other personal services, such as PetSmart (PETM). "Many experts consider this to be one of the fastest growing subsets in the overall pet industry as more and more pet owners are willing to shell money out to provide their pets with a variety of services, many of which were previously considered only suitable for humans," he adds.
How to Invest
If you’re considering buying shares in pet-related stocks, it pays to do your research. Check out available financial data for public pet-related companies, looking at factors such as annual revenue and growth, as well as trends in the stock price. Seek out companies that have shown reliable growth over time and have a solid business plan for steady expansion.
When you find a stock or two that looks like a good bet, be careful with your money. Even high-performing stocks are often subject to short-term fluctuations, so don’t put in money that you’ll need to take back out immediately -- give your stocks time to prove their value.
If you’re new to investing in general, it’s a good idea to consult with a financial adviser, who can talk with you about your stock ideal allocation across industry sectors, according to the level of risk you’d like to take on and your target time frame.
In terms of stock allocation, pet-related companies fall within the broader consumer discretionary sector. Jaffe doesn’t recommend focusing exclusively on pet companies within that sector, but he believes that investors would be wise to purchase pet-related stocks as part of a balanced portfolio.
"Everybody should have some direct exposure to the pet industry," says Jaffe. "It has the ability to be an outperformer. I would expect it to grow at a pace double that of the U.S. economy."
Many Americans have adopted animal companions to help them weather the hard times: Pet ownership is at an all-time high of 72.9 million households. Likewise, spending on pet-related companies is on the rise: The pet products and services industry has been growing by nearly six percent since 2001, topping $50 billion in 2011.
"If you take a step back and look at the last five to seven years, the pet industry has enjoyed remarkable growth," says Brian Jaffe of private equity firm Cascadia Capital. "That growth has largely been driven by the ‘humanization of pets movement’ in which consumers are spending on them as if they were equal to everyone in the household."
Recession-Proof Industry with Growth Potential
Investors have been taking notice of the growth in pet-related companies.
Highland Capital Partners, a private equity firm, holds stakes in two pet-related companies, Castor & Pollux Pet Works and Trupanion pet health insurance.
"The investment community is extremely bullish on the pet market," says David Krauser, a director at Highland’s consumer fund. "Because pets are valued as members of the family, consumers are a lot more enthusiastic about purchasing premium products. People are doing whatever it takes to keep their pets alive and healthy."
Best Picks Within the Pet Market
Krauser says that insurance, premium pet food, and online pet medication companies are all growing markets in the pet industry.
In America, says Krauser, the pet insurance market is worth around $500 million. While that may seem like a large number, "that represents less than one percent of all pets in the United States," he says. He sees a huge, untapped potential consumer market for pet insurance products.
With regards to the pet medicine market, he sees a shift from consumers purchasing drugs at the veterinarian’s office to making purchases online through e-commerce specialty sites. "In retail, the trend is to move online, and similar trends are hitting the pet market," he says.
"The sales model of pet medication has been drastically altered in recent years," agrees Andrew Schrage, co-owner of the personal finance site MoneyCrashers.com. "In the past, the majority of all pet medication was disbursed by the veterinarians themselves. This, however, has changed with the advent of the Internet, as online stores such as 1-800-PetMeds (PETS, Financial) offer many medications for less than what vets charge. Furthermore, brick-and-mortar retailers such as Target and Wal-Mart (WMT) now sell non-prescription pet health products. Lastly, the growth of the veterinary pet insurance industry is making the purchase of pet drugs much more affordable than ever."
In 2011, consumers spent close to $12 billion on pet supplies and over-the-counter medicine, according to data from the American Pet Products Association.
"The pet medication industry is constantly growing as everyone loves their pets and considers them to be part of the family," affirms Bonnie Levengood, 1-800-PetMeds marketing director. The company, which provides pet meds and health products, has seen a growth of about 3.7% in reorder sales over FY 2010.
Schrage says that pet services is also a business type that’s likely to see growth in coming years, so investors may want to consider buying stock in publicly traded companies that offer grooming, boarding and other personal services, such as PetSmart (PETM). "Many experts consider this to be one of the fastest growing subsets in the overall pet industry as more and more pet owners are willing to shell money out to provide their pets with a variety of services, many of which were previously considered only suitable for humans," he adds.
How to Invest
If you’re considering buying shares in pet-related stocks, it pays to do your research. Check out available financial data for public pet-related companies, looking at factors such as annual revenue and growth, as well as trends in the stock price. Seek out companies that have shown reliable growth over time and have a solid business plan for steady expansion.
When you find a stock or two that looks like a good bet, be careful with your money. Even high-performing stocks are often subject to short-term fluctuations, so don’t put in money that you’ll need to take back out immediately -- give your stocks time to prove their value.
If you’re new to investing in general, it’s a good idea to consult with a financial adviser, who can talk with you about your stock ideal allocation across industry sectors, according to the level of risk you’d like to take on and your target time frame.
In terms of stock allocation, pet-related companies fall within the broader consumer discretionary sector. Jaffe doesn’t recommend focusing exclusively on pet companies within that sector, but he believes that investors would be wise to purchase pet-related stocks as part of a balanced portfolio.
"Everybody should have some direct exposure to the pet industry," says Jaffe. "It has the ability to be an outperformer. I would expect it to grow at a pace double that of the U.S. economy."
